Pricing "Right"

By
Real Estate Agent with Trademark Realty Group of Palm Coast

I have been reading in blogs, news reports, and professional circles about the problem "pricing right" (no, not the direction).  Pricing is the first stage in all of putting a property up for sale.  You obviously can not even proceed without a listing price, and it will "set the stage" for what will take place over the future of that house on the market.  So, just tell me the price!  The problem is that it is not an exact science and there are many factors impacting the pricing of properties today which make this a very challenging and tedious process that should not be taken lightly.

  1. Online "Home Valuations"  - Be VERY careful with these because even as those companies have dislosed the margin of error is huge.  Zillow and it's Zestimate is one of the most popular of these services.  But even Zillow states that there are many inconsistencies in their "estimates".  For example, here in Florida Zillow's estimates are only within 10% of the actual selling price 59% of the time and that is with a 8.1% margin of error.  Obviously, not even close to anything accurate (See Data Coverage and ZestimateTM Accuracy).  Another popular version of "online valuations" is "enter your information and  . . . "  Well, you get a phone call from a professional in your area that has paid to be this services list.  You have just limited your options of who you want to work with.  Why not just find a professional in your area that has been recommended to you and call them?  Check with friends and family, and I always recommend interviewing 2 to 3 professionals in your area.  If you go to the doctor, you get a secod opinion right?  There is nothing wrong with that in Real Estate either. 
  2. High Inventories - Inventory levels obviously impact competition in selling and naturally help lend to "inconsistent pricing" that can create a spiralling effect in markets.  For example, properties with similar features are all priced within a certain range.  Let's say $200,000.  All of a sudden a similar property comes on the market at a price $20,000 lower.  Naturally, this will cause a stir as sellers (and professionals) get "anxious".  And as the law of economics comes in to play, high inventories will drive price down.  More-so, high inventories will naturally have this type of inconsistent pricing and will now give far greater data sets used to attempt to derive a realistic listing price making the process much more tedious. 
  3. High Financed to Value Rates- Many owners over the lat several years have financed a great deal of their property.  The reasons are numerous.  As pricing drops, many of these owners are facing not being able to sell at a price of what they owe.  There are some options for this such as  'Short Sales' (in pre-foreclosure issues) or waiting to build more equity or "market turns".  Unfortunately, pricing can not be based on what you owe.  Pricing can only be based on what buyers are willing to pay for that property at any given point in time. 
  4. Risky and "I think" Pricing Strategies - There is a tendency to put the "I think"'s in many things we do.  "I think buyers will . . . "  Actually buyers are telling us a great deal, and using the data given is important because "I think" is simply throwing a dart at a dart board with a blind fold on hoping to hit a bulls-eye.  Here are some common types of the strategies I am speaking of:
  •  "Start High and Take Offers" - Buyers are telling us they really don't want to play the "negotiation game" all that much.  They are searching for properties within their determined price range and making selections from there.  With high inventories in many markets, they do not have to "go back and look".  There is too much selection to play around with looking at everything.  Buyers are planning and launching strategic property searches.  If your property isn't in the range (and should be) of the other properties that are similar . . . you'll miss out. 
  • "I can always come down later"- This has always been a risky move, because it sends across very unclear messages.  One of those messages is "what's wrong with the property".  Another is "If they can come down that much, how much more can I get them to come down?"  (Now, you are in a worse bargaining position later on).  The other piece is that buyers will often look to see how long a property has been on the market.  The longer the property is on the market the more the message is going out that "others have been through it and didn't like it . . . why?" 
  • "I'll Upgrade This and That To Add To The Value" - TV and media are fun and I enjoy them too, but be careful with some of the advice regarding "upgrades".  Just because you spent $20,000 on that kitchen remodel does not mean to add $20,000 onto the listing price.  Get opinions first on "upgrading" before putting the house up for sale especially if you are doing this "upgrade" to sell. 

So what's the answer?  My recommendations are the following when attempting to price and sell your property:

  1. Get a 2nd (or 3rd opinion)- Contact 2 or 3 professionals and meet with them.  Compare what they arrived at as far as pricing is concerned.  Interview them and ask questions about the pricing they came up with, the services they provide, the type of marketing they do and why, so forth and so on.  Not only are you finding out about what your house may sell at, you are finding out what to expect from that professional if you hire them (and that IS what you are doing).  If they tell you they "do not" do xy or z marketing ask why.  They should be able to tell you the statistics that went into their decision to exclude that type of marketing.  For example, I have not done magazine marketing lately because over 10 months I received 1 call at $100/month in costs.  I do advertise in the local newspaper because that has produced at least one call per ad over the same time.  This would probably be an unpopular strategy to most, but the numbers tell the story and it's not just what "I think". 
  2. Be open to offers - Offers are a great thing because they opne the doorway to discussion and negotiation.  The easiest thing to do is let "emotion" play into offers and get upset when an offer is low.  Keep composure and evaluate the offer and discuss an appropriate counter-offer or whether the situation warrants "turning away" all-together.  Simply turning offers down with a "no" and moving on has many times brought the seller to a point later on of selling at a price lower than what was being offered months prior. 
  3. Keep in Communication With Your Listing Agent - The listing agent should be able to tell you about activity with your property of course and within the market.  With email, "seller logins" on websites, cellphones, and all the other communication technologies . . . this should not be a difficult thing to keep in contact.   
  4. Keep an Eye On Other Properties Going up For Sale - Just because a property went up for sale at a lower price DOES NOT mean you should lower your price.  First, get all the information you can on that property (or ask your Listing Agent to do so) to determine the reasoning behind the pricing.  Second, wait a bit and see what activity happens.  If you do not see showings going on or any sale activity . . . that price doesn't really mean anything and usually means there are other factors contributing to the lack of interest to the area especially if the other house is priced very aggressively. 

Remember, pricing is not an "exact science" and is based upon what a buyer would pay for the property at a given point in time.  Many factors are taken into account including historical sales data, current properties for sale, market activity, unique local factors (developments, economics, etc.).  DO NOT taking pricing lightly.  The goal is . . . GET IT RIGHT THE FIRST TIME.

Posted by

Kathleen West, Realtor
Trademark Realty Group of Palm Coast

416 South Central Ave Flagler Beach, FL  32136 | Office: (386) 446-5930 
Email:  Kathleen@PalmCoastHomeShow.com
www.PalmCoastHomeShow.com

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Comments (9)

Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate
Kathy - There is nothing more important than pricing properly. The best agent in the world will be handcuffed without the proper pricing. It is the agents that will walk away from an overpriced listing that will remain successful in a weak market.
Sep 30, 2007 03:00 AM
Rosemary Brooks
BMC Real Estate - 209-910-3706 - Stockton, CA
The Mother & Daughter Realty Team
Excellent information, thanks for sharing.  I am in the process of writing about DOM and price reductions. You have covered all the points here.  Last week I wrote about the Price is right so it is good to see that I am on the right track.  Bookmarked.
Sep 30, 2007 03:02 AM
John Walters
Frank Rubi Real Estate - Slidell, LA
Licensed in Louisiana
Kathy i am not even sure anymor what is pricing right.  This market is tough.  I priced a home two months ago and thought I had it right,still there.
Sep 30, 2007 03:08 AM
Aaron Norris, MBA, APR
The Norris Group Hard Money Lending - Riverside, CA
Hard money lending and real estate investments.

Good article.  In California, being the best value is very important.  You don't always have to be the best price.  You just want to be the next "yes" answer.  Long gone are the days you can play the list high game and make the buyer feel like they're getting a deal when you drop the price.  You'll be doing that anyway since you have almost two years of inventory to deal with.

I know several Realtors in our area who won't take listings from long-time clients because they aren't interested in being realistic about price.  The clients seem shocked!  But why would an agent take a listing that makes them spin their wheels for nothing.  It's too much work only to have the seller's listing expire and then go to another agent that gets them to lower the price.  

Sep 30, 2007 03:13 AM
Gaylen Thornton
Desert Heritage Real Estate - Surprise, AZ
As you say, pricing is not an exact science and as careful as you can be sometimes with the ever changing market, sometimes daily adjustments must be made. Great information to ponder and apply.
Sep 30, 2007 03:14 AM
David Stewart
On Top of the World Communities, Inc. - Ocala, FL
Unfortunately, the process of getting three agents to do pricing is the prelude to choosing whatever agent will list a property at the highest price. I have not, so far, seen it go any other way. And the problem with that is that there is always an agent who will overprice the listing--either by pricing it where the seller told them, in a prequal interview, they wanted to price, or where it expired once before, or wherever the seller decides, in order to make sure HE gets the listing and not one of the other agents. "Well, if I don't do that price, they'll give it to someone else." Result over time: A listing that sits on the market, and in the end expires again and takes far less when eventually it does sell. If it does.
Sep 30, 2007 03:19 AM
Max Douge
Exit Realty Enterprises - Frederick, MD
Good information.  During the early 90's, the market was also very slow.  However, the properties that caught people's attention were the ones that were priced well - they sold.  It's a challenge, but there has to be good dialogue between the realtor and seller, and the realtor has to be firm about the price they're recommending.
Sep 30, 2007 03:24 AM
Aaron Norris, MBA, APR
The Norris Group Hard Money Lending - Riverside, CA
Hard money lending and real estate investments.
Great point David.  I have heard other agents tell me they don't mind taking a listing that a client won't budge on price but uses that opportunity to lead potential buyers to some of their other better-priced inventory. 
Sep 30, 2007 03:24 AM
J Perrin Cornell
Coldwell Banker Cascade Real Estate - Wenatchee, WA
Broker, ABR, VAMRES
Price is 80% of getting the house sold. It is very important and depending on the market you are correct that your "matrix" has to change. In my area our inventory is increasing, sales are slowing but prices are still on the rise. I find I use a shorter horizon for "sold" comps and am paying much more attention to pending and actives. I find John's comment interesting. Selling is not a race... my experience, in a more normal market, the average sales time is about 120 days (listing to cash). We are in a comparatively small market (total inventory is 1700+/-) and about 300 agents. I carry, on average about 25 listings... and about 18 are residential (balance are land or lots). None of the homes I have listed have been on the market more than 60 days, most about 40. Part of the pricing process is to educate your seller about market time. Anyway, good post with good information.
Sep 30, 2007 03:25 AM